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As per experts, Union Budget 2017 focuses more on building a long-term growth plan for the manufacturing sector by strengthening rural economy and infrastructure investment

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Union Budget 2017 Impact on manufacturing industry

Mar 17, 2017

The feature analyses whether India is ready to meet its economic goals of 2020 with the proposed Union Budget 2017, while providing insights on its impression on the manufacturing segment

In the past couple of years, the Government seems to be focusing on building a long-term growth plan for the manufacturing sector by strengthening rural economy and infrastructure investment. The recently proposed Union Budget 2017 highlighted this development, thereby, boosting the 'Make in India' initiative of the Government. The following section outlines views from industry stalwarts on the implication of budget in the manufacturing sector.

“Boost for machine tool industry”

- Parakramsinh G Jadeja, President, IMTMA & CMD, Jyoti CNC Automation

The industry welcomes the ministry’s move to step up allocation for capital expenditure by 25.4% as against the year before and control fiscal deficit at 3.2% of the GDP for FY18, while going ahead with the planned development. The revenue deficit for the next year is pegged at 1.9% as against the 2% mandated by the FRBM (Fiscal Responsibility and Budget Management) Act. Vibrant manufacturing is critical for the country’s growth. The incentives given in the budget are an initial step. The sops will take some time to trickle down to the end users resulting in demand for goods and services. However, with the momentum given by this budget, the machine tool industry will pick itself up and traverse on the right track.

The reduction in income tax to 25% is a positive step towards development of the MSME sector and enhances their production capacities. The machine tool industry is the backbone of MSMEs. The Indian machine tool industry has around 1000 units engaged in the production of machine tools, accessories/attachments, subsystems and parts. Of these, around 25 in the large scale sector account for about 70% of the turnover and the rest are in the MSME sector and this sector stands to benefit a lot from this budget. The ministry’s move, therefore, will eventually give an uptick for the machine tool industry business.

The customs duty reduction from 7.5% to 2.5% on three critical components (CNC systems, ball screws and linear motion guides) has been extended to all CNC machine tools under HSS code 8456 to 8463. This will have a direct bearing on the machine tool industry and enhance its development. The increase in budget outlay for defence sector will leave the country with more funds for modernisation and create rooms for investments in the defence sector.

“Development of MSME sector”

- V Anbu, Director General, IMTMA

The budget offers stability and opportunities for India’s manufacturing sector and its machine tool industry. The growth tonic for MSMEs, such as 5% reduction in income tax, longer carry forward of minimum alternate tax credit and 3 year tax exemption for start-ups, doubling the lending rate under MUDRA Yojana, etc, will ease the doing of business and create jobs. The reduction in income tax to 25% is a positive step for development of the MSME sector and this will enhance their production capacities. The Indian machine tool industry has around 1000 units engaged in the production of machine tools, accessories/attachments, subsystems and parts. Of these, around 25 in the large scale sector account for about 70% of the turnover and the rest are in the MSME sector and this sector stands to benefit a lot from this budget. The ministry’s move, therefore, will eventually give an uptick for the machine tool industry business. The setting up of the next phase of ‘Skill Strengthening for Industrial Value Enhancement’ (STRIVE) at a proposed budget of Rs 2,200 cr in 2017-18 and 100 India International Skill Centres across the country will ensure availability of skilled manpower for the industry.

The increase in budget outlay for defence, infrastructure development, especially for roads, railways and affordable housing for the poor would enhance demand for construction equipment and other capital goods and indirectly boost the requirement for machine tool manufacturing.

“Rapid pace for economy”

- Dr Naushad Forbes, President, CII & Co-Chairman, Forbes Marshall

The industry welcomes the cut in personal and corporate income tax rates. The economic reform agenda continues at a rapid pace, with abolishing of FIPB and move for time-bound listing of CPSEs. The budget focuses on measures to increase transparency with a broad strategy to put in place the mechanisms and institutions for the future of the country, including digitalisation and formalisation of the economy.

Adherence to the fiscal prudence imperatives will lay the foundation for long-term growth and CII appreciates this commitment. The key measure of slashing the corporate income tax for companies with a turnover of less than Rs 50 crores at one go from 30% to 25%, covering 96% of all companies is greatly welcomed. This is in line with CII’s recommendation to bring down the corporate income tax rate to build the competitiveness of the Indian economy as per comparator countries.

The significant increase in infrastructure investments by 16% to Rs 3.96 lakh crores would create demand for upstream and downstream sectors. It would also generate new employment opportunities, especially through high spending in transport infrastructure pegged at Rs 2.4 lakh crores. For the first time, the railway budget was merged with the general budget, opening up the route for a coordinated multi-modal transport strategy for the country.

“Growing demand for vehicles”

- Rattan Kapur, President, ACMA & CMD, Mark Exhaust Systems

The budget gives an adequate focus to development of the rural and social sector, as well a , to the industry and infrastructure. The emphasis on strengthening the rural economy will lead to positive impact on demand for vehicles and farm equipment. ACMA also welcomes the reduction in corporate tax on MSMEs giving them the much-needed encouragement and relief; over 70% of the companies engaged in the auto component sector are small and medium enterprises. Further, with growing content of electronics in vehicles, most of which is imported, it is encouraging to note that the budget has an increased allocation of Rs 745 crores for electronics manufacturing. Further, we are happy to note that GST is taking a concrete shape. We do hope that the components, an intermediary industry, will attract a moderate rate of tax as higher rate will adversely impact the industry, especially the aftermarket.

“Towards a clean India”

- Sudhir Mehta, Chairman, CII Western Region CMD, Pinnacle Industries

It is a pragmatic budget. Overall this Union Budget is very positive in some areas. One of them is the focus on the rural economy. Next is the focus on enhanced infrastructure spending followed by a focus on job creation due to employment generated by SMEs who do get some tax breaks. The conscious thrust on empowering the rural population, women, poor and the underprivileged and youth reflects the inclusive nature of the budget. This budget takes a step ahead towards a clean India, which implies stringent compliance and is better for all citizens.

“Opportunities for growth to rebound auto industry”

- Vinod K Dasari, President, SIAM & Managing Director, Ashok Leyland

The budget has a lot of positives for the automotive industry. SIAM expects the growth in auto industry to rebound to the pre-demonetisation level through revival of the rural market and substantial increase in expenditure on infrastructure, which are two key factors responsible for the recent growth of the industry.

The decrease in corporate tax rate for MSME will give relief to the tier-2 and tier-3 automobile component manufacturers and help them make investment for future expansion. Also, the reduction in personal income tax at the lower level will cheer the market and improve sentiments, boosting personal consumption expenditure, which should be helpful in enhancing demand for two-wheelers and small passenger vehicles. However, automobile sale depends on bank finance and there is an urgent need for recapitalisation of banks, which cannot be adequately addressed with only Rs 10,000 budgetary support.

Further disappointment is that auto industry’s request for the incentive based fleet modernisation scheme has again not found support in the budget. Moreover, there was a genuine case for continuation of 200% weighted deduction on R&D expenses for auto industry, which remained unacknowledged in budget proposals. The satisfaction is that Rs 175 crores has been allocated towards funding of the electric & hybrid vehicle program, through FAME scheme.

The budget addressed one of the key concerns of SIAM regarding the payment of TCS on sale of motor vehicles of the value exceeding ten lakh rupees to a public-sector company, which is engaged in the business of carrying passengers. As suggested by SIAM, the R&D Cess on import of technology has been abolished and the scope of domestic transfer pricing provisions has been restricted to reduce compliance burden.

“Focus on MSME sector”

- Shishir Joshipura, MD & Country Manager, SKF India

The 2017 budget is consistent with the long-term policy direction. The focus on MSME sector and reduction of tax burden on them is a very concrete step to boost this sector's competitiveness. The government’s focus towards boosting the rural economy is also a very good step towards boosting the long-term economic gains. The budget focuses on the country’s inherent strengths to realise the potential of our demography and demand.

“Creating employment opportunities”

- Vikas Khanvelkar, Managing Director, DesignTech Systems

Reducing the corporate income tax to 25% for MSME having revenues up to Rs 50 crores will help this sector which is under challenging pressure to grow. Reducing the IT slab from 10% to 5% for income up to Rs 5 lakhs and simplifying the IT return form for them to one page is a relief to those people. Increase in expenditure in infrastructure projects will boost growth and will create more employment which government is aiming to achieve. Encouraging digital and cheque payments and restriction on cash payments beyond Rs 3 lakhs will help curb black money. Restricting the cash payments to political parties to only up to Rs 2000 will bring more transparency.

“Growth engine for robotic companies”

- Pradeep David, General Manager—India, Universal Robots

With efforts on to make India an electronics manufacturing hub, the Government announced in the budget that the total investment in the sector has now reached Rs 1,20,000 crore. Investment in the electronics sector is sure to trigger an inspection and assembly related market for robots.

The growth of the global industrial robotics market is driven by many factors, of which the need to reduce manufacturing cost in industries is one of the main drivers. Industrial robotics aids companies in reducing the cost due to product failure and product wastage. An increase in the outsourcing of manufacturing activities to low-cost countries, especially in the APAC region, is another driver. Many large global firms are outsourcing product development to low-cost destinations to reduce manufacturing costs. Robotics in India has already made significant inroads in electronics assembly in the recent past. Industrial robots are on the verge of revolutionising manufacturing. The Union Budget 2017 announcement will be a powerful growth engine for robotic companies. Apart from the investment, the Government has announced in electronics, we would have liked to see some incentives for manufactures in their need to embrace automation and robotics to improve productivity & quality.

As legions of robots and other automation technologies find their ways into production facilities and distribution centres - as well as through supply chains - manufacturers will grapple with an advanced level of participation of human and machine. Indeed, manufacturers could be looking at an awkward period of systemic human-resource change as they introduce robots to more varied manufacturing tasks, and as they call for greater human-machine collaboration. The CAGR of the global collaborative robot market is slated to be in the range of a phenomenal 60% over the next 5 years.

The Union Budget 2017 will certainly give a positive impact to robotics companies in India as the Government is committed to ensuring conducive labour environment / legislative reform to simplify labour laws.

“Shaping a modern Indian economy”

- Shailesh Sheth, Chairman, Programmes Committee – IMTMA

India’s Union Budget 2017 was unveiled amidst great expectations, coming after the disruptive process of demonetisation. Jury is still out on whether it was good or bad. Criticisms were put forward, tongue in cheek, to make a case for budgetary concessions. There were no universal concessions. People look into the budget for individual benefit. What is in it for me? Someone said that it lacks vision. Well, the budget lays foundations of a modern economy of tomorrow which is inclusive, developmental and growth oriented. To me, this is the Vision.

India will race forward on the path to a digital economy faster than any other nation. The budget promises 2500 crore digital transactions, 30 lakh Aadhaar enabled PoS machines, 150,000 gram panchayats to get broadband, initiatives on telecom and hardware to support digitisation, scrapping FIPB to permit most investments through parent ministries.

The combined effects of the 7th Pay Commission, OROP Payouts, 10 lakh crore for rural credit, enhancement of MNREGA and NABARD funds, construction of one crore affordable houses, 20,000 km of roads, 100% rural electrification, 3.96 lakh crore allocation for infrastructure and 5% reduction in Income Tax of lower income groups and MSMEs – all will mean a substantive drive to enhance consumption. Domestic consumption driven growth is thus imminent. The keel for a modern Indian economy is laid. I am sure of bolder moves from the government in weeks and months ahead. Start the countdown.

“Ease of doing business”

- TK Ramesh, CEO, Micromatic Machine Tools

The good news about the budget is that there were no surprises. In terms of infrastructure, some allocations and indirect stimulus have been promised but no specific initiatives have been mentioned. Even in skill development, nothing specific or concrete has been addressed. The implementation of the last budget initiatives expected to get better. A feeble attempt has been attempted in ease of doing business and corporate taxation. Going ahead, there may not be any significant thrust. At the same time, there has been no negative or untoward impact either. The good part for manufacturers of machine tools is that some duty structure rationalisation has happened. Additionally, with the GST coming in, the impact that budgets had may not be of significance any longer.

“Renewed impetus to manufacturing”

- Farrokh Cooper, CMD, Cooper Corporation

Definitely a positive budget giving relive to small scale industries and lower income group. Budget 2017 provides renewed impetus to manufacturing and ‘Make in India’ initiative. It continues to place emphasis on infrastructure development with an increased outlay of INR 3,961 billion, which will subsequently provide necessary impetus to all the allied industries and create demand. Another key highlight was the government’s continuing effort to curb black money and corruption with the reform introduced in the area of political funding.

“Government needs to invest in infrastructure"

- Dr Wilfried G Aulbur, Managing Partner—India, Roland Berger

The Union Budget 2017 comes at a time when the overall economic environment is uncertain. Elections in the UK and the US have led to a revival of protectionism and nationalism that threatens to throttle global free trade in goods and services. Increasing policy rates in the US will strengthen the US dollar and move capital away from emerging markets that desperately need fund flows to drive development. Windfall profits from commodities, especially crude oil, may not be available to the government going forward due to volatility in commodity markets. De-monetisation has hit especially farmers and low-income groups hard.

In such a challenging economic environment, ensuring stability, consumer confidence and driving consumption are the key tasks at hand. The best way to drive consumption is to create jobs and to focus on sectors that have the potential to employ a large number of unskilled workers. Hence the budget's focus on textiles, leather, construction and tourism is laudable as is the support for farmers and low-income households. Rural housing is an area where the opportunity for employing semi-skilled workers is massive. Once consumption picks up and factories see capacity utilisation levels beyond 80%, private investment will return and kickstart a cycle of investment and development.

Until that happens, the government needs to invest in infrastructure, a responsibility clearly reflected in the budget, be it via investments in road construction, railways, shipping or other large infrastructure projects. These investments will build the infrastructure of the future and also drive different sub-sectors of manufacturing such as steel, cement, construction materials, etc.

Image Gallery

  • Parakramsinh G Jadeja, President, IMTMA & CMD, Jyoti CNC Automation

  • V Anbu, Director General, IMTMA

  • Dr Naushad Forbes, President, CII & Co-Chairman, Forbes Marshall

  • Rattan Kapur, President, ACMA & CMD, Mark Exhaust Systems

  • Sudhir Mehta, Chairman, CII Western Region CMD, Pinnacle Industries

  • Vinod K Dasari, President, SIAM & Managing Director, Ashok Leyland

  • Shishir Joshipura, MD & Country Manager, SKF India

  • Vikas Khanvelkar, Managing Director, DesignTech Systems

  • Pradeep David, General Manager—India, Universal Robots

  • Shailesh Sheth, Chairman, Programmes Committee – IMTMA

  • TK Ramesh, CEO, Micromatic Machine Tools

  • Farrokh Cooper, CMD, Cooper Corporation

  • Dr Wilfried G Aulbur, Managing Partner—India, Roland Berger

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